The Ninth Circuit reversed a District Court decision that held that a debtor did not owe prejudgment interest unless a Court awarded the interest first, in Diaz v. Kubler Corporation. This appeal involved a suit by a debtor against a debt collector, alleging violation of the federal Fair Debt Collection Practices Act and the California Rosenthal Fair Debt Collection Practices Act by sending a collection letter that sought ten percent statutory prejudgment interest on the debt.
The District Court held that statutory prejudgment interest was only owed after awarded by a Court. In reversing the District Court, the Ninth Circuit explained:
It is quite plain that Kubler would have been entitled to prejudgment interest under California law when it sent its collection letter if the debt in question was certain or capable of being made certain at that time, even if Kubler had not yet obtained a judgment from a court. Section 3287(a) allows recovery of interest from the time the creditor's right to recover "is vested," and we have previously explained that "California cases uniformly have interpreted the 'vesting' requirement as being satisfied at the time that the amount of damages become certain or capable of being made certain, not the time liability to pay those amounts is determined."
Our conclusion that section 3287(a) can entitle a creditor to interest even without a prior judgment is confirmed by the text of section 3287(b), which applies where the amount of damages is not certain or capable of being made certain. That provision explicitly states that it only permits prejudgment interest where a person is "entitled under any judgment to receive damages based upon a cause of action in contract where the claim was unliquidated."
The Ninth Circuit also explained that there was no real dispute as to whether the debt was certain because Ms. Diaz's conclusory statement that Kubler Corporation was "attempting to collect more than [she] owed" was insufficient to establish a disputed material fact. The Ninth Circuit noted that Ms. Diaz's insurer and a small claims court settlement refuted Ms. Diaz's conclusory statement. Ms. Diaz's argument that relief could not be obtained absent a judgment would lead to the nonsensical result that one could not ask for prejudgment interest in a complaint before it was awarded.
This Ninth Circuit decision is a huge win for creditors and the collection professionals that work for them – allowing them to recoup the actual damage of nonpayment – interest – without the cost of litigation.
If you have any questions concerning this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.
June Coleman | 916.321.4500